The "skills" are a set of 100 VARs that are "attached" to EACH entity as properties.
So each entity has its own "local" set of values for you to store things in, like health, armour, ammo, etc
To access those values you reference them like entity_name.skill5 etc.
If it is an action, say assigned in WED, you would use my.skill5 etc.
Do you follow me?

From within the WED editor, it only lets you access to the first 20 of these skills.

Now, access the skills by using skill1, skill24, etc is cumbersome, so you can use "defines" to relabel them
for easier accessing. Lite-C defines and C-Script defines work the same but have a slightly different syntax.
Check the manual. (The define you have shown is a lite-c define)

The define tells the compiler "every time I see argument1, replace it with argument2".
So if you have #define health skill1 then everytime you use "health" in your source code,
then the compiler will replace it with "skill1".For example my.health will be compiled as my.skill1.
Much easier to read.

Hope this helps clear things up.